The Insolvency and Bankruptcy Board of India (IBBI) was established on 1st October, 2016 under the Insolvency and Bankruptcy Code, 2016 (Code). It is a key pillar of the ecosystem responsible for implementation of the Code that consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.
It is a unique regulator: regulates a profession as well as processes. It has regulatory oversight over the Insolvency Professionals, Insolvency Professional Agencies, Insolvency Professional Entities and Information Utilities. It has been tasked to promote the development of, and regulate, the working and practices of, insolvency professionals, insolvency professional agencies and information utilities and other institutions, in furtherance of the purposes of the Code.
IBBI released ‘Discussion Paper on Financial Self-Sufficiency of the Insolvency and Bankruptcy Board of India’ on 24th June 2022. It proposed to review the existing fee structure and introduce the fee and other charges on service providers, professionals appointed by IP, and on the processes under the Code. Accordingly, the existing as well as revised fee structure as proposed, in relation to Service Providers i.e., Insolvency Professionals (IPs) and Insolvency Professional Entities (IPEs), fees on other professionals appointed by IPs; Service Provider Organisations i.e., Information Utilities (IUs), enrolment for examinations and on resolutions in corporate insolvency resolution process
It is interesting to note following introductions are made in Fees payable category:
1. Other Professionals appointed by IPs – 2.00% of fees paid to professionals appointed by IP for the processes undertaken during preceding financial year.
Professional services providers to IPs like Valuers, Advocates, Accountants & others will have to pay 2% of the fees paid to them to IBBI.
2. Regulation Fee on Resolution in CIRP – 0.25% on the aggregate amounts or its equivalent provided in the resolution plan, where such amount is more than the liquidation value.
Successful Resolution Applicant has to make this provision for this success fees when the amount is more than liquidation value. When the resolution amount is already more than the Liquidation Value, the Resolution Applicant may find this as additional cost and whereas when the Value will be equal to or less than Liquidation Value, no such fees will be payable. This might drag Resolution Plan value nearer to Liquidation Value. Moreover many times term of repayment is longer, in such this fees which will have to be paid upfront will be calculated based on based on the Total Resolution Plan amount.
Increased Fee Structure – Existing Rate vis-à-vis Proposed Rate
| Particulars | Existing Rate | Proposed Rate | Increase % |
| 1. Insolvency Professionals – Individuals | |||
| (i) Registration Fees (Onetime) | Rs.10,000/- | Rs.20,000/- | 100% |
| (ii) Registration Fees (5 yearly) | Rs.10,000/- | Rs.20,000/- | 100% |
| (iii) Annual Professional Fee | 0.25% p.a. of professional fee earned in preceding in PY | 2.00% p.a. of professional fee earned in preceding in PY | 700% |
| 2. Insolvency Professional Entities | |||
| (i) Recognition Fees (Onetime) | Rs.50,000/- | Rs.2,00,000/- | 300% |
| (iii) Annual Turnover Fee 0.25% p.a. of turnover | 0.25% p.a. from services rendered in preceding in PY | 2% p.a. from services rendered in preceding in PY | 700% |
| 4. Information Utility | |||
| (i) Application Fee for Registration (One-time) | Rs.5,00,000/- | Rs.10,00,000/- | 100% |
| (ii) Application Fee for Renewal (5 yearly) | Rs.5,00,000/- | Rs.10,00,000/- | 100% |
| (iii) Renewal Fee (5 yearly) | Rs.50,00,000/- | Rs.1,00,00,000/- | 100% |
| (iv) Annual Fee | Rs.50,00,000/- | The slab-based structure Upto 100 crore 20% More than 100 10% |
|
| 5. Enrolment Fee for Examinations | |||
| (i) Enrolment Fee for Limited Insolvency Examination Each attempt | Rs.1,500/- | Rs.5,000/- | 233% |
| (ii) Enrolment Fee for Valuation Examination | Rs.1,500/- | Rs.5,000/- | 233% |
Need for financial independence of IBBI
At present, the Board is meeting only about 20% of its budgetary requirement from the fee income on Service Providers (including IPs, IPEs, IPAs, IU, RVs, RVEs and RVOs), the examinations (LIE and Valuation) conducted and other income from CIRP Form Filings and frivolous complaints. Majority of fund requirement is thus met from Grant-in Aid received from the Central Government.
IBBI is currently relying on budgetary grant as its main source of funding, there is a need for gradually shifting from current Grant-in-Aid arrangement to a system where the Board recovers all or part of its costs through levy of fees and charges.
The following table indicates the actual expenditure incurred by the Board vis-à-vis the internal receipts of the Board and shortfall thereof-
Financial Statements of IBBI
(Rs. in lakhs)
| Financial Year | Actual expenditure during the year (A) | Internal Receipts during the year (B) | Shortfall (B)-(A) |
| 2016-17 | 116.13 | 89.73 | -26.40 |
| 2017-18 | 1,484.61 | 330.41 | -1,154.20 |
| 2018-19 | 2,282.47 | 551.83 | -1,730.64 |
| 2019-20 | 2,665.92 | 599.22 | -2,066.70 |
| 2020-21 | 2,812.27 | 690.43 | -2,121.84 |
| 2021-22* | 2,735.97 | 567.58 | -2,168.39 |
| Total | 12,097.37 | 2,829.20 | -9,268.17 |
Expected increase in expenditure of IBBI during next five years
a) The additional regulatory requirement in next five years includes the various areas that are likely to be implemented or would expand their existing contours in the forthcoming years, namely, Pre-packaged insolvency resolution process, Cross-border insolvency, Group insolvency, Use of mediation in insolvency, Fresh start process, Individual insolvency resolution and bankruptcy process.
b) The need for improvising organisational resources, processes, and infrastructural arrangements. This includes building organizational capabilities in next five years in various areas namely, Human Resource, Deployment of technology and associated infrastructure of the Board in terms of own office space and establishment of regional offices across the country, if required, needs to be assessed.
Impact
Increase in Fees is ranging from 100% to 700%. These fees will be payable from pockets of IP, IPE, IU, Service providers to IP and successful resolution applicants. These additional costs will be recovered by Professionals & Services providers in form of increase in their Fees. In turn finally these costs will have to be born by Creditors, Banks, Financial Institution and Operational Creditors. Hence it will add to Process Costs and reduce the recovery made by Creditors. In discussion paper there are refences to UK & USA Insolvency Code. As compared to other Nations Insolvency & Bankruptcy Process Costs in India are relatively low. However this increase in Fees will inflate whole ecosystem of IBC are the fees will be levied on whole supply chain of IBC as well as Successful Resolution Applicants.
Financial independence will provide autonomy to IBBI to incur expenditure for further development of Insolvency Profession at much faster rate. Question remains that will Government will continue to aid the important activity from economic perspective or it will make IBBI self-reliant and inflate the Insolvency & Bankruptcy process Costs ?
Public comments
IBBI solicits comments on the proposals discussed above and the draft IP Regulations, IU Regulations, CIRP Regulations, and Press Release (for enrolment fee for examinations). After considering the comments, the Board proposes to make changes regulations.
Submission of comments
Comments may be submitted electronically by 15th July, 2022. For providing comments, Visit IBBI website, www.ibbi.gov.in; and Select ‘Public Comments’.
Written by CMA Harshad S Deshpande, Insolvency Professional
Author Bio
Excellent writing. Well structured and studied article.
Thank you